Buying a home is a big investment, in many cases the biggest investment a person will make in their life, so it is not a decision that should be taken lightly. It is very important to carefully weight the pros and cons of home ownership, to determine if it is right for you.
There are a number of advantages to owing a home, but one of the biggest ones is that instead of paying rent each month, a portion of your monthly payment is actually going towards the cost of the home. At first, the amount that goes towards the principal of the loan is very small, with most of the monthly mortgage payment going towards interest, but after about five to eight years, this slowly reverses.
Assuming the home increases in value over time, this means that even if you have not completely paid off the mortgage yet, you should be able to sell the home, getting back some of your investment and hopefully even turning a profit.
One of the other main advantages of owning a home is that there are a number of tax benefits to home ownership. For example, all of the interest you pay on your home can be deducted from your taxes, which can have a major effect on how much you get back at the end of the year.
Also, repairs and renovations can also be claimed as a deduction, so there is a big motivation to fix and renovate ones home. Not only does this make living in the home more enjoyable, but it also helps to increase the value of the home, which is a win-win situation.
In addition to the regular tax deductions, there is also a First Time Homebuyers Tax Credit Available offered by the Federal Government, which provides up to $8,000 that does not need to be paid back. This is currently available to those who have purchased a home in 2009 and the first part of 2010. In the past, there has traditionally also been a tax credit available that is basically a no-interest loan, but it has to be paid back.
One of the other main advantages to owning a home is the freedom to renovate and modify the home without having to ask anyone. This means if you want to knock down a wall to make your bedroom bigger, you don’t have to ask permission, only ensure that it can safely be done without affecting the homes structure. This applies to smaller changes too, such as changing the color of a room.
While there are many advantages of owning a home, there are also some disadvantages. One of the main disadvantages is that you are effectively tied to the home through a mortgage. This means you can’t just pack up and leave if you get a job in a different part of the country or if you don’t like your neighbors. Instead, you must always consider the mortgage when you are thinking about moving or leaving the area.
Also, while the ability to do pretty much whatever you want to the home can be very nice, this comes with responsibility. If a pipe breaks or there is some other sort of emergency, you can not call your landlord up like you would if you were renting. Instead, it is necessary to handle the situation on your own, including the cost.
There are also some risks of owning a home, with the main risk being that the home will loose its value. Sometimes, as can be seen in the current economic crisis, the home looses its value as homes flood the market and there end up being more low cost options available, driving the value of homes down across the board. In the case of subprime mortgages, it is also possible for the terms of the mortgage to cause how much is owed to the bank to increase faster than the value of the home increases. For this reason, it is essential to spend some time shopping around for loans and make sure to steer clear of subprime mortgages, which have higher interest rates and bad terms, such as penalties for paying the home off early.
Often, the argument of Renting vs Buying comes up and both sides of the debate bring up some very important points. However, in the end, no argument should be taken at face value and instead each person should take the time to evaluate whether renting or buying is best for them.
One of the main reasons that many like renting is that if something breaks, you can just call up your land lord and let them worry about it. For example, if the Air Conditioning needs to be replaced, it will come out of the land lords pocket and not yours. This means that you are not reliant upon your own funds or time to fix a problem and instead can simply pick up the phone.
Not only, do you not need to worry about things breaking, but basic home care is seldom the concern of a renter. This means you don’t have to worry about replacing the roof or a tree falling on the home. Instead, usually the biggest upkeep a renter might have to worry about is mowing the lawn.
Another reason many people prefer renting is that it offers more freedom than owning a home does. This is to say, if you want to pick up and move to a different city or even country, you can do so, with little or no consequence. In the worst case scenario, you might be breaking your lease, in which case you would loose your deposit, but aside from this, there are very few ramifications for leaving. This can be especially important when you are young and have not settled down yet.
When you purchase a home, you are also in some regards at the whims of the market. For example, home prices have been dropping for the past year or so and many people now owe more than their home is “worth.” This isn’t necessarily a problem, but if you do decide to sell your home when the value is low, you will loose money. Home values and property values is not something a renter has to worry about.
Buying a home is also a big commitment financially and since most people don’t have the money to buy the home upfront, they must use a mortgage. This means that you not only owe your lender a great deal of money over the course of a long time, but you also end up paying a great deal of interest on the home.
Renting offers some advantages, but it also has some downsides. One of the biggest downsides is that at the end of your lease, you don’t have anything to show for all the money you spent. In some regards, it is really money down the drain, as you see no return on the money you spend renting. This differs from owning a home, where each of your payments is going towards the principal of your loan.
Of course, being that most mortgages are for 30 years, much of the money you spend on your home is going towards interest, so this point is arguable. However, in most cases, when you decide you are done with your home, you can sell it and at least get some, if not more, of your money back. This can not be said of renting, in that when you walk away from your rented home, you will have nothing, except perhaps your deposit.
Another disadvantage to renting is that you are at the whim of the landlord. There are of course a number of renter’s rights, so there is some protection, but in the end, if your landlord wants you out, you will end up out.
Also, by renting, you loose a great deal of your privacy. It is not uncommon for the landlord to send someone over every month to check your filters, fire alarms, and ensure the apartment is in good repair. If they decide something needs to be fixed or replaced, there is little you can do to avoid them coming into your home. This is not the case when you own your own home and are, in effect, your own landlord.
Ultimately, whether renting or buying is best for someone, greatly varies from person to person. What is an advantage to some, might be a disadvantage to others, so it is very important to analyze your current financial and personal situation, to determine what is best for you.
A big part of this decision also comes down to analyzing the current housing market and knowing when to act. For example, house prices are currently at an all time low, as are interest rates. Compared to a few years ago, you can get much more bang for your buck, so it could be a very good time to buy a home. It could be that house prices and interest rates will continue to go down, but they are currently lower than they have been for many years and eventually, the prices will go back up. Knowing when to get your money in, is a big part of deciding between renting vs buying.